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Zero Inflation Targets: Central Bank Commitment and Fiscal Policy Outcomes

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Author Info
Peter J. Stemp () (University of Melbourne)
William M. Scarth (McMaster University, Canada)
Abstract

This paper considers a central bank with a zero inflation target and a fiscal authority with a differing objective. Situations under which the fiscal authority is able to exploit the central bank's commitment to zero inflation are examined. An example using a calibrated model shows that, in practice, it may be irrelevant whether or not the fiscal authority is aware of the central bank's objective.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 1996 with number _055.

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Handle: RePEc:sce:scecf6:_055

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Postal: Department of Econometrics, University of Geneva, 102 Bd Carl-Vogt, 1211 Geneva 4, Switzerland
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  2. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August. [Downloadable!] (restricted)
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  3. Scarth, William M., 1980. "Rational expectations and the instability of bond-financing," Economics Letters, Elsevier, vol. 6(4), pages 321-327. [Downloadable!] (restricted)
  4. Blackburn, Keith & Christensen, Michael, 1989. "Monetary Policy and Policy Credibility: Theories and Evidence," Journal of Economic Literature, American Economic Association, vol. 27(1), pages 1-45, March. [Downloadable!] (restricted)
  5. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March. [Downloadable!] (restricted)
  6. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Oxford University Press, vol. 25(4), pages 619-30, October.
  7. Michael R. Darby, 1984. "Some Pleasant Monetarist Arithmetic," NBER Working Papers 1295, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Jensen, Henrik, 1994. "Loss of monetary discretion in a simple dynamic policy game," Journal of Economic Dynamics and Control, Elsevier, vol. 18(3-4), pages 763-779. [Downloadable!] (restricted)
  9. McCallum, Bennett T., 1978. "On macroeconomic instability from a monetarist policy rule," Economics Letters, Elsevier, vol. 1(2), pages 121-124. [Downloadable!] (restricted)
  10. Tabellini, Guido, 1986. "Money, debt and deficits in a dynamic game," Journal of Economic Dynamics and Control, Elsevier, vol. 10(4), pages 427-442, December. [Downloadable!] (restricted)
  11. J. Bradford De Long & Lawrence H. Summers, 1987. "Is Increased Price Flexibility Stabilizing?," NBER Working Papers 1686, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June. [Downloadable!] (restricted)
  13. Backus, David & Driffill, John, 1985. "Rational Expectations and Policy Credibility Following a Change in Regime," Review of Economic Studies, Blackwell Publishing, vol. 52(2), pages 211-21, April. [Downloadable!] (restricted)
  14. Backus, David & Driffill, John, 1985. "Inflation and Reputation," American Economic Review, American Economic Association, vol. 75(3), pages 530-38, June. [Downloadable!] (restricted)
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  15. Mankiw, N Gregory & Summers, Lawrence H, 1986. "Money Demand and the Effects of Fiscal Policies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(4), pages 415-29, November. [Downloadable!] (restricted)
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